Question

A comparative balance sheet for “Alpha” Company containing data in € for the last
recent years is as follows:

20X2 20X2 20X1 Assets Fixed assets: Land Buildings Less accumulated depreciation Equipment Less accumulated depreciation Total fixed assets 170,000 450.000 (110,000) Comparative Balance Sheet Liabilities & 20X1 Stockholders' Equity Stockholders' equity: 225,000 Common stock 450.000 Retained earnings (100,000) Total stockholders' equity 300.000 Long - term liabilities: (100,000) Long-term notes payable 265,000 135,000 400,000 200.000 100.000 300,000 425.000 (125,000) 30,000 30,000 810,000 775,000 420,000 430,000 Long-term debt Total long-term liabilities Current liabilities: Current assets: 450,000 460,000 ICS Cash and cash equivalents Marketable securities Accounts receivables Inventory Total current assets 20.000 20.000 25,000 41,150 106,150 1,100 25,000 30,000 40,000 96,100 Accounts payable Notes Payable Accrued Expenses Taxes Payable Total current liabilities Total liabilities Total liabilities & stockholders' equity 20.000 20,000 16.150 10,000 66,150 516,150 916,150 30,000 40.000 11,100 30,000 111,100 571,100 871,100 L Total assets 916,150 871,100

Required:
1. Prepare the cash flow statement for “Alpha” Company for this year 20X2,
using the indirect method.
2. Prepare the cash flow statement for “Alpha” Company for this year 20X2,
using the direct method. .
3. How can a firm distribute (finance) a positive (negative) cash component of
earnings? Explain briefly (max: 300 words)

Answer 1

1.

Alpha Company Statement of Cash Flows For the year ended December 31, 20X2
Cash Flows from Operating Activities
Net Income		$ 64,400
Adjustments to reconcile net income to net cash provided by operations
Depreciation expense	35,000
Gain on sale of land	(4,000)
Dividend revenue	(4,150)
Decrease in marketable securities	5,000
Decrease in accounts receivable	5,000
Increase in Inventory	(1,150)
Decrease in accounts payable	(10,000)
Decrease in notes payable	(20,000)
Increase in accrued expenses	5,050
Decrease in taxes payable	(20,000)	(14,250)
Net cash provided by operations		55,150
Cash Flows from Investing Activities
Cash from sale of land	59,000
Dividend revenue	4,150
Cash paid for equipment	(125,000)
Net cash used for investing activities		(61,850)
Cash Flows from Financing Activities
Cash from issuance of common stock	65,000
Cash paid for dividends	(29,400)
Cash paid to repay long term debt	(10,000)
Net cash flows from financing activities		25,600
Net increase in cash and cash equivalents		18,900
Beginning cash and cash equivalents		1,100
Ending cash and cash equivalents		20,000

2.

Alpha Company Statement of Cash Flows For the year ended December 31, 20X2
Cash Flows from Operating Activities
Cash collected from customers	$ 1,140,600
Cash from sale of marketable securities	13,000
Cash paid to suppliers of inventory	(731,150 )
Cash paid for expenses	(259,950)
Cash paid for taxes	(53,850)
Cash paid for interest	(53,500)
Net cash provided by operations		$ 55,150
Cash Flows from Investing Activities
Cash from sale of land	59,000
Dividend revenue	4,150
Cash paid for equipment	(125,000)
Net cash used for investing activities		(61,850)
Cash Flows from Financing Activities
Cash from issuance of common stock	65,000
Cash paid for dividends	(29,400)
Cash paid to repay long term debt	(10,000)
Net cash flows from financing activities		25,600
Net increase in cash and cash equivalents		18,900
Beginning cash and cash equivalents		1,100
Ending cash and cash equivalents		20,000